James D. Hamilton
Professor of Economics
James D. HamiltonProfessor of Economics |
|
University of California, San Diego
9500 Gilman Drive
La Jolla, CA 92093
Directions to Econ Building
E-mail: mailto:jhamilton@ucsd.edu
office: (858) 534-5986
FAX: (858) 534-7040
Yes, the Response of the U.S. Economy to Energy Prices is Nonlinear offers my thoughts on a recent paper by Lutz Kilian and Rob Vigfusson. The paper attempts to reconcile conflicting evidence in the literature on whether the response of U.S. GDP to oil price movements is well represented by a linear function.
The market-perceived monetary policy rule, coauthored with Seth Pruitt and Scott Borger. This paper introduces a novel method for estimating a monetary policy rule using macroeconomic news. Market forecasts of both economic conditions and monetary policy are affected by news, and our estimation links the two effects. This enables us to estimate directly the policy rule agents use to form their expectations, and in so doing flexibly capture the particular dynamics of policy response. We find evidence that between 1994 and 2007 the market-perceived Federal Reserve policy rule changed: the output response vanished, and the inflation response path became more gradual but larger in long-run magnitude. In a standard model we show that output smoothing caused by a larger inflation response magnitude is offset by the more measured pace of response. Our response coefficient estimates are robust to measurement and theoretical issues with both potential output and the inflation target. A description of the paper written for a general audience can be found here.
Sources of Variation in Holding Returns for Fed Funds Futures Contracts, coauthored with Tatsuyoshi Okimoto. This paper relates predictable gains from positions in fed funds futures contracts to violations of the expectations hypothesis of the term structure of interest rates. Although evidence for predictable gains from positions in short-horizon contracts is mixed, we find that gains in longer horizon contracts can be well described using Markov-switching models, with predictability associated with particular episodes in which economic activity was weak and variability in the returns to these contracts was quite high.
The Propagation of Regional Recessions. (Coauthored with Michael T. Owyang of the Federal Reserve Bank of St. Louis) This paper develops a framework for inferring common Markov-switching components in a panel data set with large cross-section and time-series dimensions. We apply the framework to studying similarities and differences across U.S. states in the timing of business cycles. We hypothesize that there exists a small number of cluster designations, with individual states in a given cluster sharing certain business cycle characteristics. We find that although oil-producing and agricultural states can sometimes experience a separate recession from the rest of the United States, for the most part differences across states appear to be a matter of timing, with some states beginning a national recession or recovery before others.
Macroeconomics and ARCH. Forthcoming in Festschrift in Honor of Robert F. Engle, edited by Tim Bollerslev, Jeffry R. Russell and Mark Watson. Although ARCH-related models have proven quite popular in finance, they are less frequently used in macroeconomic applications. In part this may be because macroeconomists are usually more concerned about characterizing the conditional mean rather than the conditional variance of a time series. This paper argues that even if one's interest is in the conditional mean, correctly modeling the conditional variance can still be quite important, for two reasons. First, OLS standard errors can be quite misleading, with a "spurious regression" possibility in which a true null hypothesis is asymptotically rejected with probability one. Second, the inference about the conditional mean can be inappropriately influenced by outliers and high-variance episodes if one has not incorporated the conditional variance directly into the estimation of the mean, and infinite relative efficiency gains may be possible. The practical relevance of these concerns is illustrated with two empirical examples from the macroeconomics literature, the first looking at market expectations of future changes in Federal Reserve policy, and the second looking at changes over time in the Fed's adherence to a Taylor Rule. A description of the paper written for a general audience can be found here.
One application of my research has been new algorithms for determining when economic recessions begin and end. This originated with my 1989 article in Econometrica. Data and software used in these methods can be accessed by following this link. The current value of an index based on the most recently released quarterly GDP figures is reported at Econbrowser. An intuitive description of how this index is calcualted and what its up-to-date implications for the dates of U.S. recessions can be found by following this link. For recent values using multivariate monthly indicators, see Marcelle Chauvet's analysis of starting and ending dates for the most recent U.S. recession, and also her interesting analysis with Jeremy Piger.
A recent exchange about "A Comparison of Two Business Cycle Dating Methods" by Don Harding at the University of Melbourne and Adrian Pagan at Austrlian National University, can be accessed here. Their rejoinder may also be of interest. This exchange appeared in the Journal of Economic Dynamics and Control,July 2003.
One of my research interests concerns the economic consequences of oil price shocks. I discussed some of the current issues of interest in testimony before the Joint Economic Committee of the United States Congress on May 20, 2009. My latest research paper on this topic is Causes and Consequences of the Oil Shock of 2007-08, which was presented at a conference at the Brookings Institution on April 2, 2009. Brief summaries of that research can be found at the following links: [1] (causes); [2] (consequences).
The research described here is based upon work supported by the National Science Foundation under grants SBR-9707771, SES-0076072, and NSF-0215754. Any opinions, findings and conclusions or recomendations expressed in this material are those of the author(s) and do not necessarily reflect the views of the National Science Foundation (NSF).
Causes and Consequences of the Oil Shock of 2007-08, Brookings Papers on Economic Activity, Spring 2009: 215-259. Articles summarizing this paper for a more general audience: [1] (causes); [2] (consequences). Also available are data and software to reproduce any of the results in this paper.
Concerns about the Fed's New Balance Sheet, in The Road Ahead for the Fed, edited by John D. Ciorciari and John B. Taylor, Stanford: Hoover Institution Press, 2009. Working paper draft available here. Book can be ordered from Amazon here.
Oil Prices and the Economic Downturn, testimony before the Joint Economic Committee of the United States Congress, May 20, 2009.
Daily Changes in Fed Funds Futures Prices, Journal of Money, Credit, and Banking June 2009, vol. 41, no. 4, pp. 567-582. Working paper version here. An article summarizing this paper for a general audience is available at Econbrowser.
Understanding Crude Oil Prices, Energy Journal 2009, vol 30, no. 2, pp. 179-206. Working paper version here, slides for talk available here.
Daily Monetary Policy Shocks and New Home Sales, Journal of Monetary Economics 55 (2008), pp. 1171-1190. Articles summarizing this paper for a more general audience: [1], [2]. For an illustration of how these estimates relate to developments in January 2008, see this analysis.
Oil and the Macroeconomy, in New Palgrave Dictionary of Economics, 2nd edition, edited by Steven Durlauf and Lawrence Blume, Palgrave McMillan Ltd., 2008.
Regime-Switching Models, in New Palgrave Dictionary of Economics, 2nd edition, edited by Steven Durlauf and Lawrence Blume, Palgrave McMillan Ltd., 2008.
Assessing Monetary Policy Effects Using Daily Federal Funds Futures Contracts, Federal Reserve Bank of St. Louis Review, July/August 2008, pp. 377-393.
Inside the Economist's Mind: A Book Review, Macroeconomic Dynamics, 2008, vol. 12, pp. 112-116.
Commentary: Housing and the Monetary Transmission Mechanism, in Housing, Housing Finance, and Monetary Policy, 2007, Federal Reserve Bank of Kansas City, pp. 415-422.
Normalization in Econometrics, coauthored with Tao Zha and Dan Waggoner . Econometric Reviews, 2007, vol 26, no 2-4, pp. 221-252. Click here to download computer code used in the analysis.
Dating Business Cycle Turning Points, co-authored with Marcelle Chauvet. In Nonlinear Time Series Analysis of Business Cycles, edited by Costas Milas, Philip Rothman, and Dick van Dijk, Elsevier, North Holland, 2006.
Computing Power and the Power of Econometrics, Medium Econometrische Toepessingen, 2006, volume 14, number 2, pp. 32-38.
"What's Real About the Business Cycle?" Federal Reserve Bank of St. Louis Review, July/August 2005, 87(4), pp. 435-452. Click here to download computer code and data sets used in the analysis.
"Oil Shocks and Aggregate Macroeconomic Behavior: The Role of Monetary Policy," Journal of Money, Credit, and Banking, April 2004, vol. 36, pp. 265-286. Co-authored with Anna Maria Herrera. Click here to see a copy of the paper or to download data and programs.
"Why Are Prices Sticky? The Dynamics of Wholesale Gasoline Prices," Journal of Money, Credit and Banking, February 2004, vol. 36, pp. 17-37. Co-authored with Michael Davis. Paper can be downloaded as can the data and software used in the study.
"What Is an Oil Shock?" Journal of Econometrics, April 2003, vol. 113, pp. 363-398. A working paper version can be downloaded
as can the data and software used in the study.
"A Model for the Federal Funds Rate Target," Journal of Political Economy,
October 2002, vol. 110, pp. 1135-1167. Co-authored with
Oscar Jorda.
A working paper version can be downloaded
as can the data and software used in the study. "On the Interpretation of Cointegration in the Linear-Quadratic Inventory
Model," Journal of Economic Dynamics and Control, October 2002,
vol. 26, pp. 2037-2049. Working paper version can be downloaded. "A Re-Examination of the Predictability of the Yield Spread for Real Economic
Activity," Journal of Money, Credit, and Banking, May 2002, vol. 34, pp. 340-360.
Co-authored with Dong Heon Kim
Working paper version
can be downloaded as can the data and
software used in the study.
Advances in Markov-Switching Models, Co-edited with Baldev Raj. Physica-Verlag, 2002. "A Parametric Approach to Flexible Nonlinear Inference," Econometrica,
May 2001, vol. 69. Working paper version can be downloaded,
as can the data and
software used in this study. "The Supply and Demand for Federal Reserve Deposits,"
Carnegie-Rochester Conference Series on Public Policy, December 1998,
vol. 49. Working paper version (missing figures and some mathematical symbols)
can be downloaded,
as can the data and software
used in the study. "The Augmented Solow Model and the Productivity Slowdown," Journal
of Monetary Economics, Dec. 1998, vol. 42 (coauthored with Josefina
Monteagudo).
"Measuring the Liquidity Effect," American Economic Review, March
1997. Click here to download data
and software "Stock Market Volatility and the Business Cycle," Journal of Applied Econometrics,
Sept.-Oct. 1996, vol. 11, no. 5, (coauthored with Gang Lin). Click here
to download data and software "This Is What Happened to the Oil Price/Macroeconomy Relation," Journal
of Monetary Economics, , Oct. 1996 "The Daily Market for Federal Funds," Journal of Political Economy,
Feb. 1996. Click here to
download data and software "Specification Testing in Markov-Switching Time-Series Models", Journal
of Econometrics, Jan. 1996. Click here to download data
and software "What Do the Leading Indicators Lead?", Journal of Business, Jan.
1996 (coauthored with Gabriel Perez-Quiros). Click here to
download
data and software. 
Time Series Analysis, Princeton Univ. Press, 1994. Click here to order from amazon.com or click here to download data and programs to implement examples from the text. Here is a list of items that have updated or corrected from the earlier printings. If you have other suggestions to add to this list, please let me know. Click on pictures at right to order Japanese translation (two-volume set).
"Autoregressive Conditional Heteroskedasticity and Changes in Regime," Journal of Econometrics, September/October 1994 (coathored with Raul Susmel). Click here to download data and software.
"State-Space Models," Handbook of Econometrics, Volume 4, , edited by R. Engle and D. McFadden, North-Holland, 1994. Click here to download data and software.
"Estimation, Inference, and Forecasting of Time Series Subject to Changes in Regime," Handbook of Statistics, Volume 11, edited by G. S. Maddala, C. R. Rao, and H. D. Vinod, North-Holland, 1993.
"Was the Deflation During the Great Depression Anticipated? Evidence from the Commodity Futures Market," American Economic Review, March 1992. Click here to download data and software.
"A Quasi-Bayesian Approach to Estimating Parameters for Mixtures of Normal Distributions," Journal of Business and Economic Statistics, Jan. 1991. Click here to download data and software.
"Long Swings in the Dollar: Are They in the Data and Do Markets Know It?", American Economic Review, Sept. 1990 (coauthored with Charles Engel). Click here to download data and software.
"Analysis of Time Series Subject to Changes in Regime," Journal of Econometrics, July/August 1990. Click here to download data and software.
"A New Approach to the Economic Analysis of Nonstationary Time Series and the Business Cycle," Econometrica , March 1989. Click here to download data and software.
"Rational Expectations Econometric Analysis of Changes in Regime: An Investigation of the Term Structure of Interest Rates," Journal of Economic Dynamics and Control, June/Sept. 1988
"A Neoclassical Model of Unemployment and the Business Cycle," Journal of Political Economy, June 1988
"The Role of the International Gold Standard in Propagating the Great Depression," Contemporary Policy Issues, April 1988
"Monetary Factors in the Great Depression," Journal of Monetary Economics, March 1987
"A Standard Error for the Estimated State Vector of a State-Space Model," Journal of Econometrics, Dec. 1986